Freidus v. Barclays Bank PLC
| Decision Date | 19 August 2013 |
| Docket Number | No. 11–2665–CV.,11–2665–CV. |
| Citation | 734 F.3d 132 |
| Court | U.S. Court of Appeals — Second Circuit |
| Parties | Marshall FREIDUS, on behalf of himself and all others similarly situated, Stewart Thompson and Sharon Thompson, Trustees for the S.O. Thompson Rev. Trust and the S.G. Thompson Rev. Trust, Dora L. Mahboubi, Lead Plaintiffs–Appellants, Larry Morrison, individually and on behalf of all others similarly situated, Jeffrey Lefcourt, on behalf of himself and all others similarly situated, Beverly Pellegrini, on behalf of herself and all others similarly situated, Alfred Fait, on behalf of himself and all others similarly situated, Consolidated Plaintiffs, v. BARCLAYS BANK PLC, Barclays PLC, Matthew William Barrett, John Silvester Varley, Naguib Kheraj, Robert Edward Diamond, Jr., Sir Richard Broadbent, Richard Leigh Clifford, Dame Sandra J.N. Dawson, Sir Andrew Likierman, Sir Nigel Rudd, Stephen George Russell, John Michael Sunderland, Barclays Capital Securities Limited, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wachovia Capital Markets, LLC, Morgan Stanley & Co. Incorporated, UBS Securities LLC, A.G. Edward & Sons, Inc., BNP Paribas Securities Corp., Goldman, Sachs & Co., Keybanc Capital Markets Inc., RBC Dain Rauscher Inc., Suntrust Capital Markets, Inc., Wells Fargo Securities LLC, Marcus Agius, Dr. Christopher Lucas, Gary A. Hoffman, Frederik Seegers, David G. Booth, Fulvio Conti, Daniel Cronje, Banc of America Securities LLC, Defendants–Appellees. |
OPINION TEXT STARTS HERE
Joseph D. Daley, Robbins Geller Rudman & Dowd LLP, San Diego, CA (Mark Solomon, Andrew J. Brown, Robbins Geller Rudman & Dowd, San Diego, CA; Samuel H. Rudman, David A. Rosenfeld, Mario Alba, Jr., Robbins Geller Rudman & Dowd LLP, Melville, NY; Ramzi Abadou, Eli R. Greenstein, Stacey M. Kaplan, Erik D. Peterson, Kessler Topaz Meltzer & Check LLP, San Francisco, CA, on the briefs), for Plaintiffs–Appellants.
Michael T. Tomaino, Jr., Sullivan & Cromwell LLP, new york, N.Y. (David H. Braff, Adam T. Kirgis, on the brief), for Defendants–Appellees Barclays Bank PLC, Barclays PLC and the Individual Defendants–Appellees.
Scott D. Musoff, Skadden, Arps, Slate, Meagher & Flom LLP, New York, N.Y. (Jay B. Kasner, on the brief), for Defendants–Appellees Barclays Capital Securities Limited, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Wachovia Capital Markets, LLC, Morgan Stanley & Co. Incorporated, UBS Securities LLC, A.G. Edwards & Sons, Inc., BNP Paribas Securities Corp., Goldman, Sachs & Co., KeyBanc Capital Markets Inc., RBC Dain Rauscher Inc., Suntrust Capital Markets, Inc., Wells Fargo Securities, LLC and Banc of America Securities, LLC.
Before: POOLER and B.D. PARKER, Circuit Judges.**
The Lead Plaintiffs are purchasers of American Depositary Shares comprising Callable Dollar Preference Shares of Barclays Bank PLC (“Barclays”) sold between April 2006 and April 2008. Alleging that defendants made material misstatements and omissions in the offering materials associated with the sales of these shares, the Lead Plaintiffs sued pursuant to §§ 11, 12(a)(2), and 15 of the Securities Act of 1933.1 The United States District Court for the Southern District of New York (Crotty, J.) dismissed their claims with prejudice, finding them either time-barred, inadequately pled, or without an adequate lead plaintiff.
Lead Plaintiffs sought reconsideration. They requested leave to amend their complaint to address the pleading deficiencies, particularly to amend claims relating to the most recent offering to include allegations that defendants disbelieved the subjective valuations contained in the offering materials. The district court denied reconsideration and leave to amend, reasoning that amendment would be futile, as disbelief of subjective valuation claims could not be pursued under §§ 11 and 12(a)(2). Subsequently, this Court decided Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir.2011), holding that allegations of disbelief of subjective opinions could be brought under §§ 11 and 12(a)(2) in certain circumstances. Although we agree with the district court that some of the claims were time-barred, we conclude that, with respect to the remaining claims, the district court erred in denying leave to amend. Therefore, we affirm in part, and reverse and remand in part.
On a motion to dismiss for failure to state a claim on which relief can be granted, we assume the truth of the facts alleged, which are drawn here from the Consolidated Amended Complaint (the “Complaint”). See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 572, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Between April 2006 and April 2008, Barclays completed four offerings, from which Lead Plaintiffs and members of the putative class purchased some 218 million shares at $25 per share, yielding proceeds to Barclays of $5.45 billion. The four offerings were made pursuant to two Shelf Registration Statements, one filed in September 2005 and another in August 2007, as well as Supplemental Prospectuses filed on the dates of the offerings: April 21, 2006 (the “Series 2 Offering”); September 10, 2007 (the “Series 3 Offering”); November 30, 2007 (the “Series 4 Offering”); and April 8, 2008 (the “Series 5 Offering”) (collectively the “Offering Materials”).
As has been well documented, in the years leading up to 2006, an increased demand for homes, low interest rates, and easy access to credit fueled a rise in home prices and home building. To feed the growing demand for home ownership, mortgage loans were extended to many borrowers including those whose ability to repay was questionable. Lenders were willing take on higher-risk borrowers because the mortgages could be syndicated and sold into a robust market for mortgage-backed securities (“MBSs”), collateralized debt obligations (“CDOs”), and other similar securities. To hedge their investments in these complex securities, banks and other purchasers required that the securities be insured through monoline insurers. In this climate, in April 2006, Barclays completed its Series 2 Offering, yielding proceeds of $750 million.
By late 2006 and through 2007, faced with inflated mortgage payments and declining home values, borrowers began defaulting on their mortgages. In turn, the securities that were linked to payments by these borrowers began to decline in value. Banks that had substantial exposure to mortgage-backed securities, either by holding the securities or having lent to entities who held them, began to experience losses. Many monoline insurers had difficulty absorbing the losses, which were occurring on an unprecedented scale.
In September 2007, Barclays's Series 3 Offering yielded $1.2 billion. That same fall, many of Barclays's peers reported substantial losses as a consequence of the deteriorating mortgage-backed securities market. For example, in October 2007, Merrill Lynch announced that it was writing down the value of the CDOs it held by $12.4 billion. Later that month, UBS announced a $4.4 billion writedown in the value of its CDO and residential MBS assets. Seemingly less affected than its peers, Barclays did not take any substantial writedowns at that point. Rather, on November 15, 2007, Barclays issued an unscheduled and unannounced “Trading Update,” disclosing that while it held a total of £18.4 billion in mortgage-related and other credit-market instruments, it had taken only a £1.5 billion writedown on its CDO and subprime assets. The following week, Barclays proceeded with its $1 billion Series 4 Offering.
In February 2008, Barclays announced its 2007 year-end results and reported that it had written down the value of its credit-market assets by £1.6 billion over the preceding year. Meanwhile many of Barclays's peers had taken significantly larger writedowns, and some were on the verge of bankruptcy. In April 2008, Barclays completed its Series 5 Offering, yielding $2.5 billion.
In August 2008, after completing the four offerings at issue, Barclays disclosed that its net income had declined 34% in the first half of the year, due in part to a £2.8 billion writedown it had taken on its credit-market assets. By October, Barclays revealed that it was in need of capital, and later that month, it announced that, in order to raise $12.1 billion in capital, it was selling a third of the bank to Middle Eastern investors. Barclays also set up a hedge fund to purchase so-called “toxic” credit-market assets off of its balance sheets. By March 2009, the shares in question, which had initially sold for $25, were trading between 5 and 7 dollars.
In early 2009, the Lead Plaintiffs, who purchased shares in each of the four offerings, sued under §§ 11 and 12(a)(2) alleging that defendants had made material misrepresentations and omissions in the Offering Materials by failing to adequately disclose Barclays's exposure to credit-market risks and by misleadingly assuring investors that Barclays's risk management practices would prevent massive losses. Lead Plaintiffs' claims were also premised on defendants' alleged failure to accurately value and timely write down Barclays's credit-market related assets as the value of those assets declined and their alleged failure to comply with International Financial Reporting Standards (“IFRS”) and SEC regulations.
The defendants moved to dismiss, alleging that the Complaint failed to state a claim, that Lead Plaintiffs lacked standing to pursue a § 12(a)(2) claim, that the claims relating to the Series 2, 3, and 4 Offerings were time-barred, and that the lead plaintiff for the Series 5 Offering claims was not an adequate lead plaintiff. The district court agreed and dismissed the Complaint with prejudice. In re Barclays Bank PLC Sec. Litig., No. 09–cv–1989, 2011 WL 31548 (S.D.N.Y. Jan....
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